Bubble is the belief!

The thing always happens that you really believe in; and the belief in a thing makes it happen.

All of a sudden, China seems to be hogging quite a bit of limelight with the dirty word “bubble” being associated with its stock market. On Wednesday, the Shanghai Composite slipped into the so-called official bear market territory. Today, the benchmark Chinese index is up though, and so are other key Asian markets. Merrill Lynch says China’s stocks are set to rebound from this month’s plunge. Whether that happens or not only time will tell. Don’t get too carried away by any major movements in stocks, be it China or India or any other market. After a strong rally over the past few months, any market is bound to turn volatile.

We expect a higher opening purely on the basis of positive global cues. The early gains may not sustain though amid worries over drought and its negative fallout. Valuations do not appear to be compelling either, especially in large caps. Small-caps and Mid-caps are risky at this stage but then there are proportionate gains to be made too. In short, we are in for a sideways trend with no clear bias.

FIIs were net sellers at Rs6.22bn in the cash segment on Wednesday on a provisional basis while the local funds pumped in Rs837.7mn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net buyers at Rs3.31bn.

US stocks rose on Wednesday, reversing early losses, as investors snapped up oil and other commodity shares following a nearly 5% rally in crude.

The Dow Jones Industrial Average gained 61 points, or 0.7%. The S&P 500 index added 7 points, or 0.7%. The Nasdaq Composite advanced 13 points, or 0.7%.

US stocks slumped in early trades, but managed to trim losses. A spike in oil prices and the underlying stocks helped drive the rise after the Energy Information Administration reported a surprise drop in crude inventories.

Wall Street had rallied on Tuesday after Home Depot's earnings report and forecast reassured investors worried about consumer spending. But trading volume was light, even for late summer, which traders say suggests little conviction on the part of buyers. Light volume also makes stocks more volatile.

The nearly five-month rally has hit a roadblock over the last few sessions amid concerns that any economic recovery will be a gradual one. While recent reports show manufacturing and housing are starting to stabilize, consumer spending remains sluggish and unemployment continues to rise.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to two on volume of 988 million shares. On the Nasdaq, advancers beat decliners eight to five on volume of 1.99 billion shares.

Crude prices surged after the government's weekly inventory report showed a surprise drop in supplies. Energy shares in the S&P 500 climbed 1.9% collectively for the top gain among 10 groups after the government said oil stockpiles dropped 8.4 million barrels last week, the most since the week ended May 23, 2008.

US light crude oil for September delivery rose 4.7%, or $3.23, to settle at $72.42 a barrel on the New York Mercantile Exchange. Oil prices are up 62% this year.

A rally in crude prices gave a boost to oil stocks, including Chevron and Exxon Mobil. The Amex Oil index gained 1.6%.

After the close on Tuesday, Hewlett-Packard reported lower quarterly sales and earnings that topped analysts estimates. Mark Hurd, the company's CEO said business is stabilizing, but it is too soon to say the economy has turned a corner.

The tech leader also boosted its current-quarter earnings forecast and reiterated its full-year revenue forecast. Shares drifted lower Wednesday.

Among other movers, shares of Dow component Alcoa declined on a Goldman Sachs downgrade, according to reports. The brokerage cut its rating on the aluminum stock because it has surged sharply in recent weeks and industry conditions could deteriorate.

Drugmaker Merck's shares climbed 2.5% for the top advance in the Dow Jones Industrial Average after a federal judge said Teva Pharmaceutical Industries Ltd. can’t make a copy of its asthma drug Singulair.

US District Judge Garrett E. Brown Jr. in Trenton, New Jersey, rejected Teva’s arguments that the patent on the main ingredient of Singulair is invalid or unenforceable. The judge said Teva can’t sell a generic version of the medicine, which had 2008 sales of $4.3 billion.

Pfizer shares added 2.4%.

Asian markets tumbled, with the Chinese market losing 5% on worries about the economy. The Shanghai Composite has lost almost 20% in two weeks, a decline that is typically measured as a bear market.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.45% from 3.51% on Tuesday.

Gold rebounded as the dollar’s decline enhanced its allure as an alternative investment. Gold futures for December delivery gained $5.60, or 0.6 percent, to $944.80 an ounce in New York

The dollar dropped versus the euro as the rebound in US stocks eased investor demand for safety triggered by a tumble in Chinese shares. The yen and Swiss franc gained against currencies including the New Zealand dollar.

Pound sterling weakened versus the euro after minutes of the Bank of England’s policy meeting showed that Governor Mervyn King favored a bigger increase in asset purchases.

Reports on jobless claims, leading economic indicators (LEI) and manufacturing are all due on Thursday.

European markets tumbled through the morning, but ended the day in mixed territory. The pan-European Dow Jones Stoxx 600 index declined 0.4% to 226.26. Still, the index is showing a gain of nearly 10% for the quarter, after banks rallied more than 20% and miners jumped more than 8%.

Germany's DAX index fell 0.4% to 5,231.98 and the French CAC-40 index. index finished flat at 3,450.34. The UK's FTSE 100 index reversed earlier losses to finish up 0.1% at 4,689.67.

Indian markets ended in the red erasing previous day’s gains led by selling in the Oil & Gas, Metal, Auto and Power stocks. Markets cracked after Mainland China's top stock markets suffered their latest in a string of heavy falls Wednesday, with the Shanghai Composite Index closing down 4.3% and the Shenzhen Composite Index ending 4.9% lower. Resource companies were among the loss-leaders, with Jiangxi Copper Co. falling 7.6% and Yunnan Copper moving 7% lower.

A Dow Jones Newswires reported quoted a Southwest Securities analyst as saying that amid a lack of other market cues, a drop in global commodities had triggered the fall in Chinese shares. On Monday, the Shanghai Composite tumbled 5.8% -- its worst performance since November -- while the Shenzhen Composite dove 6.6%.

The BSE Sensex slipped 225 points or 1.5% at 14,809 after touching a high of 15,097 and a low of 14,684. The index opened at 15,079 against the previous close of 15,035. The NSE Nifty ended lower by 65 points to shut shop at 4,394.

In Asia, the Nikkei in Japan ended lower by 0.8% at 10,204 while Australia's S&P/ASX marginally slipped 0.2% at 4,373. The Hang Seng index in Hong Kong fell 1.7% at 19,954. Shanghai index in China declined 4.3% at 2,785.

In Europe, stocks were trading in red. The FTSE in the UK was down 0.9%. The DAX in Germany was down 1.2% and the CAC 40 index in France was down 0.8%.

Coming back to India, among the BSE sectoral indices, the Oil & Gas index was the top loser, losing 2.7%, followed by the Metal index that was down 2.3%. The BSE Auto index down 2.1% and the BSE Power index was down 2%.

The BSE Mid-Cap index lost 1.1% and the BSE Small-Cap index fell by 0.6%.

Within the Sensex, the major losers were ACC, Reliance Infra, RCom, Grasim, Tata Steel, M&M and Reliance Industries. Among the major gainers were HDFC, HDFC Bank and L&T.

Outside the frontline indices, the big losers in the broader market were Glenmark, Bharat Forge, Essar Oil, Balrampur Chini, RCF and Gujarat NRE Coke. On the other hand, gainers included Tulip Tele, IVRCL Infra, CESC, Bhushan Steel and GMDC.

Shares of Cipla erased early gains and ended lower by 2% to Rs259 after reports stated that the Delhi High Court dismissed German drug major Bayer Healthcare’s attempt to stop the drug regulator from giving marketing approval to Cipla for the generic version of Bayer’s patented cancer drug, Nexavar. The stock opened at Rs268 and made an intra-day high of Rs274 and a low of Rs257. Total traded volumes stood at 0.6mn shares.

Shares of Glenmark lost over 14% to Rs223 after Forest Laboratories, Inc. and Glenmark Pharmaceuticals SA Switzerland Once-daily treatment with Oglemilast did not show a statistically meaningful increase from baseline compared to placebo in the primary endpoint trough FEV1, a measure of pulmonary function that is decreased in patients with COPD.

Panacea Biotec was locked at 5% upper circuit to Rs174 after the Company received an award notification worth Rs10.67bn for supply of its EasyFive (pentavalent vaccine), from UNICEF for years 2010, 2011 and 2012.

EasyFive is world's first fully liquid pentavalent vaccine introduced in India by Panacea Biotec in January 2005, which immunizes children against five dreadful diseases (Diptheria, Tetanus, wholecellPertussis, Hepatitis B and Hemophilus Influenza Type b) of early childhood.

Shares of PSL Ltd gained by 2.5% to Rs145 after the company announced that it won order worth Rs2.1bn from Gail India. The stock opened at Rs142 and made an intra-day high of Rs148.5 and a low of Rs139. Total traded volumes stood at 0.4mn shares.

Shares of Sun TV erased early gains and fell 1% to end at Rs272. ~1.4mn equity shares of the company were transacted in a block deal. The shares were traded at an average price of Rs275 on the National Stock Exchange.

The stock opened at Rs280 and made an intra-day high of Rs281.9 and a low of Rs272. Total traded volumes stood at 1.46mn shares on NSE.

Megasoft announced that the board of directors approved the sale and transfer of the BlueAlly division as a "going concern" to Trianz Inc., US, which is a wholly owned subsidiary of Trianz Holdings Pvt Ltd, India.

The board of directors approved the price to be around US$13 to US$15mn. This is subject to the approval of the shareholders of the company.

Shares of Megasoft were locked at 20% upper circuit to end at Rs31.55. The stock opened at Rs26.7 and made an intra-day high of Rs31.55 and a low of Rs26.05. Total traded volumes stood at 2.9mn shares.